The aggregate price level is likely to rise if ________.
A) real GDP grows faster than the stock of money
B) the stock of money grows faster than real GDP
C) the long-term real interest rate rises
D) the long-term nominal interest rate rises

Question

Quizplus · Accepted Answer

According to the quantity theory of money, there is a direct relationship between the stock of money and the aggregate price level. If the stock of money grows faster than real GDP, there will be more money in circulation relative to goods and services, leading to an increase in prices.

The Aggregate Price Level Is Likely to Rise If ________